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The welfare effects of government's preferences over spending and its financing

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  • Alper, C. Emre
  • Ardic, Oya Pinar
  • Mumcu, Ayse
  • Saglam, Ismail

Abstract

In this paper we examine the welfare effects of government's preferences over consumption and investment spending under different methods of financing in a two-period OLG model. The government has a utility function defined over the decomposition of her spending over two periods and raises funds by issuing bonds and by printing money. She allocates her funds into consumption expenditure that benefits the current population and investment expenditure which benefits the future population. The model is calibrated using data on the U.S. economy for the period 1981-2004. The findings reveal that the government's choice of financing as well as composition of spending into consumption-investment have differing impacts on the welfare of the young and old generations.
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  • Alper, C. Emre & Ardic, Oya Pinar & Mumcu, Ayse & Saglam, Ismail, 2008. "The welfare effects of government's preferences over spending and its financing," Economic Modelling, Elsevier, vol. 25(1), pages 1-12, January.
  • Handle: RePEc:eee:ecmode:v:25:y:2008:i:1:p:1-12
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    Cited by:

    1. Philipp Harms & Joachim Lutz, 2014. "Foreign vs. domestic public debt and the composition of government expenditure: A political-economy approach," Working Papers 1415, Gutenberg School of Management and Economics, Johannes Gutenberg-Universität Mainz, revised 20 Nov 2014.
    2. varelas, erotokritos, 2013. "A Comment on Chicago Rule, Chicago School, and Commercial Bank Seigniorage," MPRA Paper 48770, University Library of Munich, Germany.
    3. Soldatos, Gerasimos T. & Varelas, Erotokritos, 2014. "The Chicago Tradition and Commercial Bank Seigniorage," MPRA Paper 57721, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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